Digging Out the Perception of Crypto Pump and Dump

The tragic part is that digital currency has now borrowed the term Pump and Dump from stock promotion scams. People have become oblivious to the fact that Pump and Dump can have a positive scenario as well.

Now, this is how it works when traders go the negative way.

The investors try to promote their cryptocurrency in an illegal way. What they do is that buy the coins at cheap rates.

Next, they sell the cryptocurrency once the price of the coin rises due to an increase in the interest. Well, in the digital currency world announcements are used as a form of promoting the coin. For example, you may find posts about a coin on the forum. You may find expert tips on troll box chats.

The Perfect Example of a Pump Scam

If you are still confused about the Pump scenario, let us explain it by a practical example. What some of the traders do is that they start to buy a huge quantity of the coins.

These investors usually go for those coins that have a low trading volume. Let us assume that the volume of trading is about 100 Bitcoins each day. The investor cashes on the moment and buys about 50 Bitcoins. The Pump Scam works perfectly when there is no liquidity in the market.

Now the strategy that the trader adopts is that he starts to raise the price. The other traders also get this information about the trending coin depending upon the promotion medium used. During this process, this trending coin experiences a price hike from day to day.

For example, the price may increase by 50% every passing day.

This price hike attracts other traders as well. They become inclined towards making short-term profits. Tragically some of the beginner traders also get lured towards the profits. The real problem is that these traders do not have any knowledge about the market.

When the scam investor notices that the price has become quite high, then this is the point he starts selling the Bitcoin. This means that scam investor will be able to generate a lot of profit while the new traders who end up buying the coin will have losses coming their way.

Varying Means Used to Promote the Pump and Dump Scheme

It might come up as a surprise for you, but usually, the emails and phone are the common medium for the promotion of the pump and dump schemes.

Now what usually happens is that you receive a call from a person who promises a low risk, high reward investment opportunity you just cannot ignore by any means.

You will get to see the scammers marketing the penny stocks through the company website or bulletin boards. Even online newsletters or blogs can be used as a medium for promotion. Now you may also come across fake press releases that may be promoting the pump and dump schemes.

These promoters claim that they have impending development. They might also claim that they have got authentic market data about the cryptocurrency. However, this is just a well-laid trap for the new investors.